Analysis: Brazil, the active epicenter for mergers and acquisitions in Latin America

RIO DE JANEIRO, BRAZIL – In the first months of the year, 569 business deals were registered in Brazil, an increase of 19% year on year. Despite inflation and elections, business is not slowing down.

Oil fields, supermarkets, shopping mall chains, iron ore mines, and forestry assets were part of Brazil’s numerous mergers and acquisitions in the first months of the year.

After a successful 2021 for IPOs, 2022 is shaping up to be the year of mergers and acquisitions.

According to the Transactional Track Record data, prepared in collaboration with Data site and AON, in the first quarter, there were 804 announced and completed transactions in the region, of which 569 were from Brazil, a country that itself recorded a 19% growth.

Several companies are looking to consolidate and digitize their sectors, while private equity funds are venturing into acquisitions after divesting old investments in recent years.

BTG Pactual estimates that merger and acquisition (M&A) volumes are likely to reach historical levels of US$100 billion. “I don’t think it will slow down until 2022,” said Bruno Amaral, head of M&A at the firm.

The reasons? “The level of 100 to 110 points that Ibovespa (a selection of 50 companies listed on the Sao Paulo Stock Exchange) is very healthy for mergers and acquisitions, and liquidity, whether in Brazil or abroad, remains high,” he explained.

Macroeconomic uncertainties and elections are secondary issues for this market so far. One of the bets is that foreigners will be more inclined to do business in the South American giant, as the Brazilian exchange rate makes the country’s assets very attractive.

“It’s a good time to invest because they are going up in dollars, and the real is devalued,” Felipe Thut, head of investment bank Bradesco BBI, told Valor Economico. “Also, funds are no longer competing with the hottest moment in the stock market history.

Earlier this year, Daniel Bassan, executive director of UBS BB, assured us that this year “will again be used by (private equity) funds to build portfolios.” “So much so that the largest funds, having returned funds to their investors with the exits of companies, are already in the fundraising phase,” he added to Brazilian daily Estadao.

POINTS OF INTEREST

A few weeks ago, Petrobras signed a deal with PetroRio to sell its entire stake in the Albacora-Leste concession for US$2.2 billion, making it one of the most important transactions in the period.

Yesterday, multinational Nestlé acquired local product brand Puravida for an undisclosed amount. In addition, Kimberly-Clark plans to divest its tissue paper assets in the region, with one of the most important markets being Brazil.

According to a Brazilian section of the Transactional Track Record report, the sectors with the largest transactions are those related to technology (Internet, software and IT services), specific software industry, business and professional services, and other financial services, which represents some consolidation from 2021, as in previous years the business and professional services sector was the most active.

However, given the size of the market and the number of transactions – more than US$12.293 billion in total, taking into account only the reported amounts anyway – there are options to consider in all sectors.

Everything related to trade and real estate assets is relevant. There, for example, Chilean company Cencosud bought a chain called Giga for about US$100 million.

Announcing the transaction, the company’s CEO, Matías Videla, said that “with this operation, Cencosud reaffirms its commitment to the most important market in South America and manages to enter the largest state in Brazil, with the fastest growing format, namely the attacked, and the most resistant to recessionary macroeconomic conditions.”

Shopping mall operators Aliansce and BR Malls are also seeking a merger to become the largest local operator. This has yet to be approved by shareholder meetings of both companies.

Infrastructure, be it healthcare, airports or roads, also emerged among the leaders, and the financial sector saw the most diverse movements during the period.

Some segments, such as healthcare, which have been at the forefront of mergers and acquisitions for years, are already becoming expensive for private equity funds, which could also lead to changes.

Experts see a trend toward more deals in renewable energy segments, such as wind and solar farms, agribusiness, mining and the various types of technology, such as FinTech.